College tuition, priced like a cellphone plan

Some for-profit schools now offer cheap, pay-as-you-go pricing

AnnaMariaAndriotis

As rising tuition continues to put college out of many students’ reach, some schools are experimenting with the kinds of pay-as-you-go payment plans more common to phone and cable bills.

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While $199 might cover just a single credit (or much less) at a typical college, the same fee buys a month of unlimited classes at New Charter University, one of two online schools by startup firm UniversityNow. The pricing structure is similar to online college course provider StraighterLine’s model, launched in 2008, which charges $99 per month of enrollment, plus $49 per class.

By creating the college version of unlimited data plans, experts say for-profit schools aim to get a leg up on the competition. In recent years, for-profit colleges have come under fire by students and Congress for their excessive tuition costs and the large number of students who drop out and default on their loans. After growing every year for the past decade, enrollment in private, for-profit colleges fell for the first time in 2011 by 3%, according to the National Center for Education Statistics. As demand drops, so does “their ability to charge high tuition,” says Rob MacArthur, president of Alternative Research Services, which has tracked for-profit colleges. For their part, both the companies say their goals are to offer a quality higher education while lowering costs for families. “Our model isn’t to spend a lot of money on marketing and charge you on the back end,” says Gene Wade, co-founder and CEO of UniversityNow.

The new pricing structure also comes as more nonprofit colleges move into online education. In recent years, Carnegie Mellon, Johns Hopkins, Tufts and Yale University have rolled out online courses that are free, though not for credit. Also, a recent survey shows that the percent of nonprofit colleges considering online education critical to their long-term strategy is on the rise: 77% of public colleges and 54.2% of private nonprofit colleges said so in the fall of 2011, up from 73.6% and 49.5%, respectively, two years prior, according to the Babson Survey Research Group and the College Board. As more nonprofits enter the sector offering lower-cost alternatives, it’s likely that for-profit schools will slash tuition, says MacArthur.

These lower-cost alternatives can help families save thousands of dollars. Students who take 10 core classes over 12 months at StraighterLine will spend $1,678, 46% less than the average tuition and fees at in-state community colleges this year. The difference is even greater when compared to four-year colleges: Tuition and fees currently average $8,655 and $29,056 at in-state public and private nonprofit colleges, respectively, according to the College Board.

But skeptics say the cheap pricing comes with downsides. On a large scale, there are concerns about the general quality of online for-profit education, says Mark Kantrowitz, publisher of FinAid.org. They may not be unfounded. UniversityNow’s other school, Patten University, is accredited by the Western Association of Schools and Colleges, which also accredits Stanford University and Pepperdine University among other schools. But it’s currently on probation after the commission found “serious issues of noncompliance.” For its part, UniversityNow says those issues date back more than a decade, before the school was part of UniversityNow, and they primarily involve the university’s business operations that “in no way reflect the quality of Patten’s academic programs or degrees.” The company adds that it has brought in a new leadership team of educators and administrators.

Kantrowitz says students thinking about taking cheaper, online core classes before transferring to another college will have to find out if their new school accepts credits from the online courses. If it doesn’t and the student has to retake those courses at a nonprofit college, any savings from online schooling would have been for nothing. Burck Smith, founder and CEO of StraighterLine, says his company has partnered with a few dozen colleges that will accept its classes. Separately, students have reported being able to transfer course credits to other non-partner schools, including California State University Los Angeles, Johns Hopkins University, and the University of Texas at Austin, Smith says.

It remains to be seen whether students will be lured in. StraighterLine says it has between 10,000 and 15,000 students this year, and that its enrollment has been tripling year over year since 2010. UniversityNow says it has roughly 600 students at both of its schools, noting that it only launched this year and hasn’t done any marketing yet.

Despite the drawbacks, some say these for-profit programs are worth it – especially because most of the students are working adults who don’t have time to attend classes at an actual campus. David Welch, 36, is currently taking classes online at New Charter University with plans to attain a Bachelor’s degree in business management. Until recently, he had put off college because of the high costs of tuition and his hectic work schedule as a dispatch manager at a fuel company in Sacramento, Calif. With New Charter, he attends classes at nights and on weekends—and hasn’t gone into any debt doing so. He’s hoping the degree will help him move up in his field. “People are used to going into debt with no guarantee of a job—there are smarter ways to get an education now,” he says.

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